By Nigam Arora & Dr. Natasha Arora

To gain an edge, this is what you need to know today.

The Power Of Island Reversal

Please click here for a chart of  S&P 500 ETF () which represents the benchmark stock market index S&P 500 ().

Note the following:

  • The chart shows the island reversal pattern. We previously shared this pattern with you when it was in the process of forming.
  • The chart displays the power of the island reversal pattern showing four consecutive bullish days.
  • The chart shows a breakout to a new high.
  • The chart shows the breakout is on low volume. During this holiday period, liquidity is low allowing the momo crowd to push the market higher with low volume.
  • The stock market is staging a strong rally in the face of a new world record of coronavirus cases.
  • The 1.38% rally yesterday was the fifth best after-Christmas rally since 1945.
  • As the indexes rally, market internals are weaker than at any time since March 2020 — the pandemic low.
  • Based on NYSE new lows, the pattern of the internals is similar to December 1999.  Keep in mind that Nasdaq crashed in 2000.

Holiday Schedule

There will be no Afternoon Capsule during this holiday week.  The Afternoon Capsule will resume next week.

Momo Crowd And Smart Money In Stocks

The momo crowd is 🔒 (To see the locked content, please take a 30 day free trial)  in the early trade.  Smart money is 🔒.

Gold

The momo crowd is 🔒 in the early trade. Smart money is 🔒.

For longer-term, please see gold and silver ratings.

Oil

The momo crowd is 🔒 oil in the early trade.  Smart money is 🔒.

For longer-term, please see oil ratings.

Markets

Our very, very short-term early stock market indicator is 🔒.  This indicator, with a great track record, is popular among long term investors to stay in tune with the market and among short term traders to independently undertake quick trades.

Interest rates are ticking down and bonds are ticking up.

The dollar is weaker.

Trading futures is not recommended for most investors. The purpose of providing this information is to give an indication of the premarket activity that usually guides the activity when the market opens.

Gold futures are at $1819, silver futures are at $23.43, and oil futures are at $76.36.

&P 500 futures resistance levels are 4826 and 4900: support levels are 4770, 4713, and 4600.

 futures are up 36 points.

Protection Bands and What To Do Now?

It is important for investors to look ahead and not in the rearview mirror.

Consider continuing to hold existing positions. Based on individual risk preference, consider holding 🔒 in cash or treasury bills or short-term bond funds or allocated to short-term tactical trades, and short to medium-term hedges of 🔒 , and short term hedges of 🔒 . This is a good way to protect yourself and participate in the upside at the same time.

You can determine your protection bands by adding cash to hedges.  The high band of the protection is appropriate for those who are older or conservative. The low band of the protection is appropriate for those who are younger or aggressive.  If you do not hedge, the total cash level should be more than stated above but significantly less than cash plus hedges.

It is worth reminding that you cannot take advantage of new upcoming opportunities if you are not holding enough cash.  When adjusting hedge levels, consider adjusting partial stop quantities for stock positions (non ETF); consider using wider stops on remaining quantities and also allowing more room for high beta stocks.  High beta stocks are the ones that move more than the market.

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Nigam Arora

Nigam Arora

Nigam Arora is known for his accurate stock market calls. Nigam is a distinguished master of the macro. He is a popular columnist with over 100 million page views, an engineer, and nuclear physicist by background. Nigam has founded two Inc. 500 fastest growing companies and has been involved in over 50 entrepreneurial ventures. He is the developer of Theory ZYX of Successful Change Management and is the author of the book on Theory ZYX, as well as the developer of the ZYX Change Method for Investing.

Dr. Natasha Arora

Dr. Natasha Arora

Dr. Natasha Arora has significant expertise in investment analysis especially biotech, healthcare, and technology. Natasha is a graduate of Harvard Medical School followed by a postdoc at MIT. She has published several peer reviewed research papers in top science journals.